Meaning of General Lien
A General Lien is a right recognized under the Indian Contract Act, 1872, which allows certain categories of persons to retain goods belonging to another until the general balance of dues is cleared. According to Section 171, bankers, factors, wharfingers, attorneys of High Courts, and policy brokers have the right to retain goods not merely for a specific debt but for the general balance of accounts due to them. This distinguishes general lien from particular lien (Section 170), where goods may be retained only for charges incurred on those goods.
General lien is broader in scope, as it secures all outstanding claims. However, this right can be restricted or excluded by express contract between the parties. General lien thus acts as a security measure, ensuring that professionals and financial institutions are safeguarded against unpaid dues in the course of their business dealings. It is a statutory right and not available to every person; only the specific categories mentioned in Section 171 can exercise it, unless otherwise agreed.
Importance and Scope of General Lien
The significance of general lien lies in its protective nature. For example, a banker deals with multiple transactions with a customer. Without a right of general lien, the banker would have to depend on specific securities for each debt, making financial dealings cumbersome and insecure. General lien provides the banker with a continuous right to retain the goods and securities of the debtor until all outstanding dues are paid.
Similarly, other professionals like factors (agents who sell goods on commission), wharfingers (warehouse keepers), and attorneys also enjoy this statutory right. However, this right is not absolute; it cannot be exercised in cases where the goods are deposited for a specific purpose inconsistent with general lien. For instance, if securities are deposited with a banker for safe custody, the banker cannot claim them under lien. Thus, general lien strikes a balance between protecting professional creditors and preventing misuse against the rightful interests of the owner of the goods.
Legal Effect and Limitations
The exercise of general lien gives the holder a right to retain possession but not ownership of goods. Ownership continues to remain with the bailor (the original owner), while the bailee (the one retaining under lien) merely has the right to refuse delivery until dues are cleared. The lien does not grant any right to sell the goods unless there is an express contract to that effect, except in the case of a banker’s lien where courts have interpreted the right to include a limited power of sale in certain circumstances.
Furthermore, the lien can be excluded either expressly or impliedly by an agreement between the parties. The law thus provides fairness by ensuring that general lien is not a tool for arbitrary retention but a protective shield against default. The doctrine of lien embodies the principle that one who is in lawful possession of another’s goods has a right to secure themselves against losses in the absence of payment, subject to statutory conditions.
Real-Life Example
Suppose Mr. A deposits shares and documents of title with his bank for safekeeping while simultaneously maintaining a loan account with the same bank. If Mr. A defaults in repaying his loan, the bank can exercise its general lien under Section 171 and retain those shares and documents until the outstanding loan is cleared. However, if Mr. A had deposited the documents solely for the purpose of being placed in a safe custody locker, the bank cannot use those documents under general lien, as that would go against the specific purpose of bailment.
Similarly, if a warehouse keeper stores goods belonging to a trader and the trader has other unpaid dues relating to storage, the warehouse keeper may retain the goods until the total dues are cleared. This demonstrates how general lien protects professional service providers from being left uncompensated while also ensuring limits so that the lien is not unfairly applied in situations contrary to the agreed purpose.
Mnemonic to Remember – “BFAWP”
To remember the categories of persons entitled to General Lien under Section 171, use the mnemonic BFAWP:
- B = Bankers
- F = Factors
- A = Attorneys of High Courts
- W = Wharfingers
- P = Policy brokers
Think: “General Lien Benefits Fair And Wise Professionals.” This mnemonic makes it easy to recall both the concept and the specific categories entitled to exercise this right.
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